The U.S. Willful Practice of Long-arm Jurisdiction and its Perils

February 2023

Contents

Introduction

I. An Overview of U.S. Long-arm Jurisdiction

II. Exercise and Expansion of U.S. Long-arm Jurisdiction

III. The Perils of U.S. Long-arm Jurisdiction

Conclusion

Introduction

The United States has a longstanding practice of exerting frequent long-arm jurisdiction over other countries, including both its allies and countries with which it has hostile or strained relations. In recent years, the practice has kept expanding in scope, with U.S. "arms" stretching longer and longer. Examining cases of U.S. abuse of long-arm jurisdiction, this report lays bare the severe harm it has done to the international political and economic order and the international rule of law.

I. An Overview of U.S. Long-arm Jurisdiction

◆ According to U.S. domestic law, long-arm jurisdiction refers to jurisdiction over persons or entities domiciled or resident outside the territory of the sanctioning state. First established by the U.S. Supreme Court in the case of International Shoe Co. v. State of Washington (1945), long-arm jurisdiction allows state courts to exercise in personam jurisdiction in civil and commercial cases where jurisdiction cannot be exercised because the defendant is not domiciled in the state, on the basis that the defendant has some "minimum contacts" with the state.

◆ According to international law, the exercise of a country's jurisdiction over an extraterritorial person or entity generally requires that the person or entity or its conduct has a real and sufficient connection to that country. Yet the U.S. exercises long-arm jurisdiction on the basis of the "minimum contacts" rule, constantly lowering the threshold for application. Even the flimsiest connection with the United States, such as having a branch in the United States, using U.S. dollar for clearing or other financial services, or using the U.S. mail system, constitutes "minimum contacts."

◆ To exercise long-arm jurisdiction, the United States has further developed the "effects doctrine," meaning that jurisdiction may be exercised whenever an act occurring abroad produces "effects" in the United States, regardless of whether the actor has U.S. citizenship or residency, and regardless of whether the act complies with the law of the place where it occurred. The United States has also been expanding the scope of its long-arm jurisdiction to exert disproportionate and unwarranted jurisdiction over extraterritorial persons or entities, enforcing U.S. domestic laws on extraterritorial non-US persons or entities, and wantonly penalizing or threatening foreign companies by exploiting their reliance on dollar-denominated businesses, the U.S. market or U.S. technologies.

◆ In essence, long-arm jurisdiction is an arbitrary judicial practice, wielded by the U.S. government on the strength of its national power and financial hegemony, to enforce extraterritorial jurisdiction over entities and individuals of other countries on the ground of its domestic law.

II. Exercise and Expansion of U.S. Long-arm Jurisdiction

◆ In the many years of exercising such jurisdiction, the United States has gradually developed a massive, mutually reinforcing and interlocking legal system for long-arm jurisdiction, and continued to lower the threshold and expand its discretionary power, thus shaping long-arm jurisdiction into a tool for the United States to advance hegemonic diplomacy and pursue economic interests. Such practice disregards other countries' sovereignty, blatantly meddles in others' internal affairs, seriously damages the legitimate interests of other countries, and disrupts the normal order of international exchanges. The expansion of U.S. long-arm jurisdiction is all-dimensional. Citing the "minimum contacts" rule and the "effects doctrine," the United States has developed massive and complex legal and enforcement systems to support its long-arm jurisdiction which is expanding in scope and fields of application.

◆ Long-arm jurisdiction has also become a means by which the United States abuses unilateral sanctions, especially secondary sanctions. To ensure the extraterritorial effects of U.S. sanction laws, the United States would usually exercise judicial authority to hold extraterritorial entities and individuals accountable for failing to comply with U.S. sanction laws. In addition to long-arm jurisdiction, administrative, economic, financial and other means would also be employed to implement its secondary sanctions.

◆ Compulsory extraterritorial evidence collection is another important means of long-arm jurisdiction. In the judicial process involving other countries, the United States frequently takes unilateral compulsory measures to collect evidence outside its own territory, circumventing normal channels of judicial and law enforcement cooperation between countries. It would directly ask banks and Internet firms that have branches or are listed in the United States to provide evidence such as account information and data located outside the United States. When other countries try to raise démarche, the United States would always respond by citing excuses such as "judicial independence" or "low efficiency in normal judicial assistance or law enforcement cooperation." These typical examples of long-arm jurisdiction have severely damaged other countries' judicial sovereignty, and the legitimate rights and interests of those subjects of evidence collection.

◆ The United States has put in place a whole-of-government system to practice long-arm jurisdiction, which features a division of labor among departments and inter-agency collaboration. The President and Congress are the main decision makers when it comes to sanctions. The President decides on most of the economic sanctions, and Congress participates through legislative activities under specific circumstances. At the heart of sanctions enforcement is the Office of Foreign Assets Control (OFAC), an agency under Treasury responsible for freezing assets subject to U.S. jurisdiction, formulating and adjusting lists of sanctioned individuals and entities, and reviewing and issuing licenses. The Department of State's Office of Economic Sanctions Policy and Implementation (SPI) is responsible for developing and implementing foreign policy-related sanctions. The Bureau of Industry and Security (BIS), an agency of the Department of Commerce, administers separate lists from the OFAC. On top of these, the U.S. government bolsters its sanctions enforcement through control of SWIFT and CHIPS, two major cross-border payment and clearing systems, by pressing them, when it deems necessary, to cut off contact with the financial institutions of the subject country to achieve the purpose of economic sanctions.

◆ The United States has stepped up legislation for long-arm jurisdiction. A wide range of laws in the United States advance long-arm jurisdiction, including Trading with the Enemy Act, International Emergency Economic Powers Act, Countering America's Adversaries Through Sanctions Act, Foreign Corrupt Practices Act, and Helms-Burton Act. Others such as the USA PATRIOT Act and National Defense Authorization Act contain long-arm jurisdiction clauses. A number of presidential executive orders also involve long-arm jurisdiction. More and more U.S. federal legislation contains long-arm jurisdiction clauses to prevent Americans from circumventing U.S. laws by establishing subsidiaries in foreign countries, or foreigners enjoying less restrictions than Americans, or relevant international rules-making hurting U.S. interests. These legislative moves allow the United States to enforce long-arm jurisdiction in its diplomacy by citing domestic laws.

◆ There is a growing tendency of the U.S. applying long-arm jurisdiction to criminal cases, which is an extreme abuse of the practice. In recent years, a number of U.S. federal laws include extraterritorial clauses, which have been exploited by the Department of Justice to launch criminal investigations and prosecutions. In these proceedings, federal courts begin to apply the concept of long-arm jurisdiction when examining the basis of their jurisdiction by broadly interpreting the connection between the case and the United States, expanding the scope of personal and territorial jurisdiction, and lowering the threshold for the application of protective jurisdiction and general jurisdiction.

III. The Perils of U.S. Long-arm Jurisdiction

◆ The United States is the only sanctions superpower in the world. According to the Treasury 2021 Sanctions Review, by fiscal year 2021, the number of active U.S. sanctions designations had increased to more than 9,400.

◆ Sanctions strain relations between countries and undermine the international order. Healthy state-to-state relations are the bedrock for peace and stability in the international order. In the 1990s, the United States introduced the Helms-Burton Act to impose economic sanctions through long-arm jurisdiction on individuals and entities worldwide conducting transactions with Cuba. It sparked strong opposition from the European Union, who in 1996 passed the Blocking Statute to neutralize through legislation the effects of U.S. long-arm jurisdiction within the EU, and enable individuals and entities in the EU to sue individuals and entities in the United States. Apart from this, the EU put forward a series of proposals and initiatives at the UN General Assembly, the Security Council, the World Trade Organization and other international bodies, calling on the international community to pay attention to the harmful effects of U.S. long-arm jurisdiction, and even resorted to the WTO dispute settlement procedures. So far, the "long arm" of U.S. jurisdiction has reached China, Russia, Iran, Syria, the DPRK, Cuba, France, the UK, Germany, Japan, among others. In an article published in Foreign Affairs, Professor Daniel Drezner of Tufts University criticized successive U.S. administrations for abusing economic coercion and economic violence and using sanctions as the preferred solution to diplomatic problems, which have been ineffective and causing humanitarian disasters.

◆ Since 1979, the United States has imposed various types of unilateral sanctions on Iran and other countries. In 1996, it rolled out the D'Amato Act which forbids foreign companies from investing in the energy sector of Iran and Libya, resulting in long-term damaging ramifications. Afterward, the United States keeps ramping up sanctions against Iran. Under the Trump administration, it harbored a policy of "maximum pressure" and wanted to use sanctions to effect a regime change in Iran. According to then Iranian President Hassan Rouhani, sanctions under the Trump administration caused at least US$200 billion worth of economic damage to Iran; he condemned such sanctions as inhumane, a crime and an act of terrorism.

◆ Between 1980 and 1992, the United States imposed unilateral sanctions on Libya, and from 1992 to 2003, it rallied or coerced allies into expanding sanctions against Libya. The World Bank noted that Libya suffered up to US$18 billion economic losses as a result of the sanctions, while an official Libyan estimate put the figure at 33 billion.

◆ Crude U.S. sanctions on Iraq after the Gulf War brought about serious consequences. From August 1990 to May 2003, they caused a total loss of US$150 billion in Iraq's oil revenue. As a result, the country's per capita income falls below its 1990 level of US$7,050 even to this day. The sanctions have also caused a serious humanitarian disaster, with infant mortality rate doubling and the under-five mortality increasing six-fold. Meanwhile, Iraq's education, health and social security systems were destroyed; its literacy rate fell from 89 percent in 1987 to 57 percent in 1997.

◆ Undermining the purposes and functions of various international governance mechanisms. The United States has frequently imposed unilateral sanctions outside the UN framework. In 2021 alone, the U.S. Department of the Treasury, Department of Commerce and other agencies imposed various sanctions on as many as over 2,000 entities. As a result, the sanctioning function of the Security Council is undercut, seriously affecting its normal function of maintaining international peace and security. When the International Criminal Court (ICC) attempted to investigate suspected war crimes by U.S. forces in Afghanistan, the United States, with itself not being a member of the Court, responded by launching sanctions against ICC Prosecutor Fatou Bensouda and senior official Phakiso Mochochoko, sparking unanimous outcry from the international community. Despite the ruling of the Dispute Settlement Body of the WTO that its Section 301 procedures are a violation of international law, the United States continues to launch various unilateral Section 301 investigations on imports from China and other countries, and keeps all existing Section 301 tariffs unchanged. Such actions have directly sabotaged the tariff concessions achieved by many rounds of difficult negotiations of the multilateral trading system, blatantly trampled on the purposes and spirit of the multilateral trading system, and eroded the cornerstone of the system's operation.

◆ Undermining the interests of companies of other countries. To maintain its economic and technological supremacy, the United States abuses its public power to interfere with normal international commercial exchanges and competition. Under the pretext of safeguarding national security and fighting against human rights violations, it has adopted a package of measures including the Entity List and economic sanctions to restrict foreign enterprises from obtaining raw materials, items and technologies vital to their survival and development, sometimes even used secondary sanctions to cut those companies' normal trade with enterprises from other countries in an effort to disrupt their supply chains root and branch.

◆ A case in point is the imprisonment of a senior manager from the French company Alstom. In 2013, in order to beat Alstom in their business competition, the United States applied the Foreign Corrupt Practices Act to arrest and detain Frédéric Pierucci on charges of bribing foreign officials. He was further induced to sign a plea deal and provide more evidence and information against his company, leaving Alstom no choice but to accept General Electric's acquisition, vanishing ever since from the Fortune 500 list. The U.S. long-arm jurisdiction has become a tool for its public power to suppress competitors and meddle in normal international business activities, announcing the United States' complete departure from its long-standing self-proclaimed champion of liberal market economy.

◆ In recent years, the United States has frequently employed the Global Magnitsky Human Rights Accountability Act (2016) to impose unilateral sanctions on entities in various countries deemed to have engaged in "serious human rights violations." However, while exercising such unilateral sanctions, the United States has often violated the basic human rights of the sanctioned subjects disregarding the fact that their human rights are also entitled to protection.

◆ When COVID-19 was raging in the world, the U.S. government did not relent in imposing unilateral sanctions on Iran, Syria and other countries, making it difficult for these countries to obtain the much-needed medical supplies to fight the virus. As a result of the sanctions, Iran has been cut off access to essential medicines and medical equipment, putting the health of millions of Iranians in jeopardy. To raise funds to fight the pandemic, the Iranian government applied to the IMF for a US$5 billion exclusive loan, but the effort was blocked by the United States. Even worse, the United States prevented Iran from importing COVID vaccines by freezing its overseas funds and threatening vaccine suppliers. As the Brookings Institution estimated, during the height of the pandemic in Iran, U.S. sanctions further exacerbated the spread of the virus and could have caused up to 13,000 of deaths.

Conclusion

The U.S. long-arm jurisdiction is not something new. In spite of adaptations over time in its contents and measures, the nature of the U.S. long-arm jurisdiction has not changed: it has been, since the very beginning, a hegemonic tool to maintain U.S. hegemony, suppress foreign competitors, interfere in the internal affairs of other countries, and even subvert the governments of other countries. Over the last few years, the United States has abused long-arm jurisdiction by continuing to lower the threshold and intensifying measures to an unprecedented degree against wider range of targets. It not only undermines the principle of sovereign equality, violates international law, and erodes the multilateral order with the UN at its core, but also creates and intensifies tensions and conflicts among major countries, and poses a threat to the international security system established after World War II. It also interferes with and distorts normal international commercial exchanges and trade order, disrupts the supply chain of global trade, damages the interests of enterprises and raises their operating costs. The United States should renounce its illegal unilateral sanctions and long-arm jurisdiction measures, and truly take up its international responsibilities as a permanent member of the UN Security Council.